Global Economy 'HEATs' Up - Cooperation Best Way Forward
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Author: Saudi Aramco News
Released 26 November 2007
RIYADH, November 21, 2007 -- The relationship between oil producers and the global economy took the spotlight during a session of the OPEC Summit Symposium.
Tatsuo Masuda of the Tokyo Institute said the current era is characterized by “HEAT,” or Human Earth Tension, which he said will impact OPEC’s future relationship with the global economy. The HEAT components that create tension are climate change, geopolitical issues and high oil prices.
Massive investments are required to tap future reserves of OPEC nations. The need for investment will increase as the reserves of non-OPEC nations begin to decline.
Masuda said the size and complexity of international oil markets has now moved beyond anyone’s control, including OPEC’s. Cooperation between OPEC and the wider global community - especially the International Energy Agency and the International Energy Forum - is the best way forward, he said.
Masuda also said the higher price of oil, if managed properly, might facilitate the evolution of global economic stability. For that to happen, Masuda said, OPEC must think and act differently by creating a sense of preciousness rather than abundance for oil and helping to mitigate the pain of higher prices among poorer and developing nations. The former vice president of Japan National Oil Corp. also noted that the wider community has a role to play in recognizing OPEC’s efforts to maintain costly spare capacity.
Nasser Al-Jaidah, CEO of Qatar Petroleum International, discussed the issue of oil supply and the massive investments required to tap future reserves of OPEC nations. Al-Jaidah said the need for investment will increase as the reserves of non-OPEC nations begin to decline. Then, he said, the focus will be on the five OPEC nations with the largest reserves - Saudi Arabia, Iran, Iraq, Kuwait and the U.A.E., and their national oil companies.
Pierre Terzian of France’s Petro Strategies said oil pricing has changed significantly since the last OPEC summit in Caracas, particularly regarding the increased volume of oil trade on futures markets. Combined with this volume increase, Terzian said, new agents have moved into the trading markets. Hedge funds and other investment vehicles that he collectively referred to as “liquidity providers” had grown from 0.2 percent of trades on the Intercontinental Exchange in 2002 to 32 percent by 2006. Terzian said that this, together with the rise of exempt commercial markets, is one of the primary causes of increased volatility in oil prices. He said legislative reform needs to take place to better balance the market.
Terzian said OPEC must engage in reforming international regulations such as the Commodity Futures Modernization Act. All panelists recognized the importance of engagement with the international community.
“We cannot escape the symbiotic link between OPEC and the global economy,” said Raad Alkadiri of Petro Finance.